The Cost of Offering Employer-Sponsored Health Insurance to Your Employees
As open-enrollment season nears, you might be wondering what it’s going to cost you to offer health insurance benefits to your employees. If you have less than 50 employees, that number could be zero, since you’re not required by law to offer employer-sponsored health insurance to your workers. But you might want to offer this benefit anyway since it could enable you to attract the necessary talent to your workforce.
If you do decide to offer employer-sponsored health insurance to your employees, it turns out there’s not much of a difference between the cost large (200+ employees) and small (3-199 employees) employers pay.
Total Cost for 2019
On average, the cost of offering health benefits to employees reached $14,800 per employee in 2019, up from $14,099 in 2018. This represents a 5 percent rise in costs for the 6th year in a row. In contrast, wages rose 2.6 percent, on average, and inflation was 2.5 percent for the same time frame.
What’s Included in that Cost?
Employers contribute to the cost of their employees’ health plans in the form of premiums and prescription drug benefits. Like anything healthcare-related, the cost of premiums depends on multiple factors such as location, employee demographics, number of plan participants, plan carrier, plan structure and network providers. For example, a high deductible health plan (HDHP) costs an employer $5,004, on average, for an individual, while a preferred provider organization (PPO) will cost $5,653, on average. Also, workers at small companies have cheaper family coverage than workers at large companies ($18,739 per employee vs. $19,972 per employee).
Now for one of the costliest elements of health benefits: prescription drug coverage. Specialty drugs account for 50 percent of most employers’ prescription drug spending, even though on average, only 1.5-2 percent of their employees take these drugs. That means a relatively small portion of the participants are driving the majority of the cost. In fact, in the Kaiser Family Foundation Health Benefits Survey for 2018, employers cited drug prices as one of the primary reasons for the rising cost of health benefits.
How Can You Lower Your Costs?
- Offer virtual solutions. One way benefits managers suggest lowering health benefit costs is to offer a way for employees to receive care for things like cognitive and behavioral therapy, lifestyle coaching and chronic disease management virtually. This type of care is usually cheaper than an in-office visit and can help to significantly lower the overall cost of your plan.
- Use targeted specialty pharmacy management for high-cost drugs. Since specialty drugs are a significant driver of cost, benefits managers recommend partnering with specialty pharmacies that typically cost less than the average drug store chain.
- Implement Account Care Organizations (ACOs) or High-Performance Networks. ACOs are groups of doctors, hospitals and other providers who voluntarily come together to give coordinated, high-quality care to patients. High-Performance Networks offer limited in-network doctors, clinics and hospitals to offer cost-effective care.
While you’re looking to lower your costs, keep in mind the American Care Act (ACA) gives three parameters for acceptable health coverage:
- The lowest-priced plan (based on an individual employee’s premium cost), must equal 9.56 percent or less of your employee’s household income.
- Your plan(s) must cover at least 60 percent of total health services
- Your plan(s) must include substantial coverage for physician and inpatient hospital services.
The Bottom Line
Offering employer-sponsored health benefits to your employees is a costly endeavor, especially if you employ more than 200 people. But there are ways to reduce your annual liability. And remember, a healthy workforce is a productive workforce, so employee health benefits are a cost well-spent.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.